Judge Koh wants Apple to reveal the profitability of the Apple iPhone

Some things you never ask such as a woman's age, someone's political affiliation, and if they are a New York Yankee or Boston Red Sox fan. You also are not supposed to ask Apple about how profitable the Apple iPhone is. This is a secret that the Cupertino based firm has been holding onto since the first unit was sold back in 2007. But Judge Lucy Koh, who presided over the epic Apple-Samsung patent suit, wants Apple to open its books to see if the company can justify the large $1.05 billion verdict that it was awarded by the jury.

On Friday, the judge refused to grant Apple the right to seal its financial records. Judge Koh has made it clear that if Apple is going to use its financial performance to win huge verdicts, it cannot do so and then keep those numbers a secret. The judge wants Apple to reveal the profitability of the Apple iPhone. Around now, you might ask yourself that since Apple is a public company, shouldn't these figures be available to the public? The SEC does not require that companies like Apple with a multitude of products, break out the profitability of each one. It would be like McDonalds issuing a P/L for each variation of burger it sells.

The figures will not be made public immediately as Judge Koh has decided to keep the documents sealed until she gets a ruling on her order from the US Court of Appeals for the Federal Circuit, the higher court which handles all patent cases. A similar order that the judge made on August 9th to unseal certain documents has already been sent to the Appellate Court for their review.

What the judge is saying is that while Apple can keep the profit/loss figures for the Apple iPhone a secret for competitive reasons, it cannot do so while using the same financial performance as a tool to win billion dollar verdicts.

"In seeking the very large damages award it sought at trial, Apple stipulated to the introduction of JX1500, a partial summary of its damages calculations, which contains some product-specific unit sales and revenue information. As Apple appears to have realized in introducing that exhibit, it cannot both use its financial data to seek multi-billion dollar damages and insist on keeping it secret. As this Court explained in the August 9 Order, Apple has not established that public availability of its product-specific unit sales, revenue, profit, profit margin, and cost data would actually provide its competitors with an advantage, as would be required to find the information sealable under the ‘compelling reasons’ standard."-Judge Lucy Koh

I'm trying to figure out if its a good or bad thing for Samsung.. We all know they are extremely over priced and that Apple makes huge profits.

So to prove that the iPhone does bring in lots of revenue due to it being so over priced, then theoretically the damages would be considered more severe as Samsung have taken away these potential profitable sales?

My understanding is that, while profits may have been (arguably) lost, the rationale for asking is due to the infringement on components at core cost, rather than over inflated prices set by apple. Hence, lost income, rather than potential lost profits, as it is impossible to determine if such sales would have even occurred. Samsung's more aggressive with its prices, and those customers that could not have justified a purchase of an inferior but arguably comparable apple product at a higher cost could justify the purchase of a Samsung product at a lower price, and with more capabilities. To which point, if it could be justified that Samsung did cause any lost sales, the penalty would be for core cost of each iphone, minus (of course) the cost of Samsung's own components. That said, I am no legal scholar.

Given that Judge Koh has requested profitability data, that would imply that Koh is considering Profits versus Margin for the damages model. Gross Margin is generally defined as Sell Price less Cost of Goods Sold, which based on iFixIt (and others) numbers is around $400/iPhone. Profitability is a different kettle of fish. Profitability takes Gross Margin and subtracts Selling, General & Administrative (and a few other items) expenses to arrive at Net Profits.

If Apple's revenue model peaks at launch and then trails off as time passes, profitability will be less, since SG&A expenses are generally constant over time.

All of which would explain why Apple is wanting to keep their profitability numbers sealed.... Kind of like a modern variant on the emperor having no clothes.

Well said (both you and box). I am very interested to see how much Apple really profits from each device.

You have a good point that people might just buy samsung products simply for just "better value".

If i can get a phone that does what this other phone does (arguably better) for 75% of the other phones price - Then why not?

There's one thing even an android fan (me) will admit tho, and that is that samsung is guilty of copying elements from the iphones design. However, the fact that they are patentable in the first place isn't right. Its like saying Doge copied ford with their charger vs mustang. They have their similarities, now get over it. and may the best product win.

Apple is definitely getting a case of heartburn. They are wanting to have their cake while eating it at the same time.

I suspect that what will be shown is that Apple's profitability peaks at each iToys launch with profitability trailing off as time passes. That is probably a different 'lost profits' model than what was the basis for the $1.05 B judgement.

I wouldn't go that far. At least not on this round. Whether the Apple patents are valid is not the same as saying that Apple didn't lose $ due to sales they lost to Sammy. This iteration is about how many sales were lost to Sammy and the profitability of those lost sales.

There is a separate matter of whether Apple's patents are invalid. If Sammy gets a new trial, then the validity issue should be re-visited.

Agreed, and it isn't like samsungs are running ios. Different OS, different capabilities, and different price points. People who would have wanted an iDevice and been of means to purchase one likely did, or would have purchased a true KIRF, not an arguably similar-looking one from one of the world's tech giants. Samsung continued the F700 design language until it replaced that with the nature-themed looks they are attempting to mimic and infuse in their devices with the GS3 onwards

I didn't even think of that. It wouldn't make sense that your sales are harmed if you always outsell, hopefully the damages will be significantly reduced or an appeal might just get this case going in Samsung's favor

what they should have done was just get snooki in court and handed her an unmarked galaxy s and an unmarked iphon and if she could tell which is apple and which is samsung from the shape and operating system, samsung wins
if she couldn't, apple wins
matter finished

Maybe Apple should pay them underaged Chinese workers 20 cents a day, instead of just 10 cents (ok plus room and board). This would lower their profits and help in this court case. Three CHEERS for the Judge...

Can we have just ONE apple article (I'd prefer to not have any at all, but I digress...) that doesn't mention cupertino? Pretty sure we all know where their compound is, and fairly certain we don't care.

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